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Commonwealth Bank of Australia (ASX: CBA) shares surged some 27% between October 2020 and February 2021.

Since 2015, however, the CBA share price has typically struggled to make it over the $90 level, and more often than not, tended to trade in a sideways fashion. With the CBA share price currently fetching $86.60, what can investors expect from Australia’s biggest bank? 

Australia’s economic recovery well underway

Australia’s economic recovery is well underway and stronger than expected, according to the Reserve Bank of Australia’s April monetary policy decision. The statement from the RBA governor Dr Philip Lowe said: 

The unemployment rate fell to 5.8 per cent in February and the number of people with a job has returned to the pre-pandemic level. GDP increased by a strong 3.1 per cent in the December quarter, boosted by a further lift in household consumption as the health situation improved. The recovery is expected to continue, with above-trend growth this year and next. Household and business balance sheets are in good shape and should continue to support spending.

Looking over at the property market, he also commented: 

Housing markets have strengthened further, with prices rising in most markets. Housing credit growth to owner-occupiers has picked up, with strong demand from first-home buyers. In contrast, investor credit growth remains subdued. Given the environment of rising housing prices and low interest rates, the Bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained.

CBA’s half-year results presentation also brights light to a “relatively well-positioned” Australia and New Zealand economy, highlighting factors such as significant accumulated household savings, a strong recovery in the labour market, high consumer and business confidence and an improved outlook for housing. 

Arguably, the RBA’s relatively positive commentary should spell good news for CBA’s operations, particularly business and home lending. 

Earnings eyeing full recovery 

CBA’s half-year results highlighted a strong rebound in earnings with cash net profit after tax down 10.8% to $3,886 million compared to 1H20. If COVID-19 impacts and remediation costs were excluded, cash NPAT would have been broadly flat. 

The bank’s Common Equity Tier 1 (CET1) capital ratio has improved from 11.7% in 1H20 to 12.6% in 1H21. 

This year’s interim dividend is less, at $1.50 per share compared to the $2.00 per share in 1H20. 

Overall, the CBA share price is almost back to where it was before the pandemic, with the bank delivering similar profit levels and a higher CET1 ratio but paying a more reserved percentage of its earnings as a dividend. 

What do brokers think about the CBA share price? 

Two brokers have updated their ratings and target prices for the CBA share price in April. 

On 1 April, Credit Suisse retained a neutral rating with an $85 target price. Its commentary highlighted the reduction in loan repayment deferrals, noting that CBA had experienced a 76% reduction in total deferrals to $2.3 billion. Its deferrals are predominately mortgages with only $147 million of SME deferrals. 

On the same day, Morgan Stanley was underweight on CBA shares with a $79 target price. It noted that system housing loan growth had picked up to an annualised rate of around 5.1% in February. Meanwhile, further data led the broker to believe that the surge in deposits has ended. 

Morgan Stanley believes that the high levels of liquidity, ongoing deposit mix shift and lower cost of wholesale funding supports the near-term outlook for CBA shares.

Overall, broker target prices aren’t pointing to much upside for CBA shares. However, whether this means the CBA share price will not be able to break through the $90 barrier over the near term remains to be seen. 

More reading

• ASX 200 Weekly Wrap: ASX sees 7,000 points once more
• The Afterpay (ASX:APT) share price is up almost 20% this month
• 6 reasons CSL (ASX:CSL) shares are struggling
• This broker thinks the Afterpay (ASX:APT) share price is a buy in April
• CommBank (ASX:CBA) cops massive fine for deceptive conduct

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Can the CBA (ASX:CBA) share price break above $90? appeared first on The Motley Fool Australia.

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The Platinum Asset Management Ltd (ASX: PTM) share price is not having a great start to the week today. At the time of writing, Platinum shares are down 3.57% to $4.86 a share after closing at $5.04 on Friday afternoon. In contrast, the S&P/ASX 200 Index (ASX: XJO) is currently down just 0.5%.

It’s a rare 2021 pullback for Platinum, which has seen its share price rise more than 17% year to date so far. So why is the Platinum share price underperforming so convincingly today?

Ebbs and flows for Platinum shares

The Platinum share price is almost certainly reacting today to an ASX release the company made last week after market close on Friday. This announcement was a monthly funds under management (FUM) disclosure that the asset manager regularly reported to the market. This was was for the month of March. It reported that Platinum experienced an outflow of $206 million over the month of March. It started the month with $24.853 billion in funds under management, and ended the month with $24.5 billion in FUM. That’s a decrease of 1.42%. 

Platinum did note that $41 million of that outflow was from the  Platinum Trust Funds. It also noted that “$99 million of the total net outflow is related to one client rebalancing their portfolio”. That’s quite common for large or institutional investors to do at the end of a quarter. Even so, it’s arguably not exactly a good look for a fund manager like Platinum to lose this much in outflows over March when both the ASX 200 Index and the US S&P 500 Index (INDEXSP: .INX) both had strong months. 

Platinum, through its chief investment officer Andrew Clifford, has recently made headlines decrying the market “mania” of recent months. In a recent investment letter, Mr Clifford stated that “ever-lower bond yields further fuelled the speculative mania in growth and defensive stocks”. He went further in a recent investor presentation, stating “When you hear people say this is not like the 2000s tech bubble, I must say I agree. This is a much bigger bubble. The question is when does it end”.

An interesting sentiment (and some bold predictions) there. Mr Clifford might end up being proven right by history. But judging by the Platinum outflows, investors might not be on board just yet.

More reading

• Why Brickworks, Imugene, Platinum, & Synlait shares are dropping today
• Orocobre (ASX:ORE) share price rebounds from broker downgrade
• Fighting the Fed: The next choice for ASX investors
• ASX 200 energy shares outlook boosted by mega African oil project
• ASX 200 down 0.3%: Webjet completes note offering, Xero pushes higher

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why the Platinum (ASX:PTM) share price is falling today appeared first on The Motley Fool Australia.

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Clinuvel Pharmaceuticals Limited (ASX: CUV) shares are falling today despite, or possibly because of, the latest strategic update by the pharmaceutical company. At the time of writing, the Clinuvel share price is trading at $29.37 – down 2.49%. By comparison, the S&P/ASX 200 Index (ASX: XJO) is 0.35% lower.

Let’s take a closer look at today’s news.

What is Clinuvel?

Clinuvel is a global biopharmaceutical company that develops drugs for the treatment of a range of skin disorders. The company’s signature medication is Scenesse.

The drug is for the treatment of erythropoietic protoporphyria (EPP). EPP is a rare metabolic disorder that causes burns after brief exposure to visible light, especially sunlight.

Clinuvel strategic update

The Clinuvel share price is slumping today despite the company providing investors with a second update on its expansion and growth plans. Clinuvel’s first update was in October 2020, and it plans to release a new update every six months.

Managing director Philippe Wolgen says the bi-annual updates are important for owners in the company.

“The Strategic Update series additionally aims to inform about the Company’s opportunities, and this new format allows us to be more detailed on technology and selected markets,” Mr Wolgen said in the statement.

Below is a summary of the updates provided by Clinuvel.

• 40 American skin specialty centres will now treat EPP patients with Scenesse.
• The company is looking to expand the use of Scenesse to “genetic, metabolic, and life-threatening disorders,” along with skin treatments.
• Clinuvel will begin treating “several untreated and unserved groups at the highest risk of photodamage and skin cancers,” using Scenesse, as soon as COVID restrictions allow.
• A trial for Arterial Ischaemic Stroke is underway, with 80 patients being screened in Melbourne.
• Four new products are in development, with scant detail provided.
• The communications and marketing teams are “80% recruited.”
• A new manufacturing division will focus on the development of “innovative, controlled-release systemic and topical formulations.

Investors seemingly are not impressed by these updates, with the Clinuvel share price haemorrhaging after their release.

Only three weeks ago, the company announced it would be expanding its DNA repair program. That announcement was also met with a stock sell-off.

Clinuvel share price snapshot

Despite today’s setback, the Clinuvel share price is still around 42% higher than this time last year. In fact, just in the past month, the company’s value has appreciated by around 16% with Clinuvel shares hitting a 52-week record of $30.61 last Friday.

Clinuvel has a market capitalisation of $1.5 billion.

More reading

• Clinuvel (ASX:CUV) share price falls despite positive update
• ASX 200 Weekly Wrap: Inflation fears hold ASX down
• These were the best performers on the ASX 200 last week
• ASX 200 Weekly Wrap: Calm restored to the ASX 200
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Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Is the National Australia Bank Ltd (ASX: NAB) share price a COVID-19 recovery buy idea?

Well, it has already gone up a fair bit. Over the past year the NAB share price has risen by 62% and in the last six months it has increased by 41%.

Things have really turned around for NAB over the last 12 months

Just under a year ago, NAB revealed its FY20 half-year result which showed $1.4 billion of cash earnings – down 51.4%. Excluding large notable items of $1 billion, cash earnings were $2.47 billion, down 24.6%.

Credit impairment charges increased 158.6% to $1.16 billion with a $828 million increase of its collective provisions. At the time, NAB said it had approved more than 70,000 home loans and 34,000 business loans for deferral of repayments.

The most recent insight we’ve been given into NAB’s operations has been the FY21 first quarter result which showed $1.65 billion of cash earnings. That was 47% higher than the FY20 second half quarterly average, primarily driven by low credit impairment charges.

NAB said that at an underlying level, performance was sound in the current competitive, low interest environment. Cash earnings growth was 1% in the FY21 first quarter, compared to the first quarter of FY20.

The second half of FY20 saw credit impairment charges of $1.6 billion. But the FY21 first quarter saw just $15 million of credit impairment charges.

How is the loan book performing?

NAB said its asset quality remained broadly stable over the first quarter of FY21, with the ratio of 90+ days past due and gross impaired assets to gross loans and acceptances declining 2 basis points to 1.01%.

However, the ratio of 90+ days past due and gross impaired assets to gross loans and acceptances increased by 17 basis points to 1.18%, mainly due to missed payments relating to the large cohort of home loan customers exiting deferrals in October 2020.

As at 31 December 2020, Australian home loan deferral balances have declined to approximately $2 billion and Australian business loan deferrals have declined to approximately $1 billion. Those balances compare with peak deferral balances of $38 billion for home loans and approximately $19 billion for business loans.

NAB explained that current asset quality trends for customers exiting deferrals are worse for the total portfolio but better than expected at this stage. Most customers have resumed payments (more than 90% of balances), but a small cohort require additional assistance.

NAB’s balance sheet remains ‘unquestionably strong’, to use APRA’s benchmark, with a common equity tier 1 (CET1) capital ratio of 11.7%.  

The CEO of NAB, Ross McEwan, said:

Improving economic and health outcomes in Australia and New Zealand are encouraging, as are the reductions we are seeing in deferral balances. However, there are still a number of uncertainties requiring further clarity. These include the impact on customers of ongoing health alerts and measures put in place to contain the spread of COVID-19 and the wind-down of deferral and jobkeeper programs.

Is the NAB share price a buy?

The broker Credit Suisse rates NAB shares as a buy, but with a price target of $27 – so that suggest little upside over the next 12 months. The improvement of the NAB loan deferral situation is a positive.

Credit Suisse thinks NAB is trading at 16x FY21’s estimated earnings with a grossed-up dividend yield of 5.8%.

Broker Morgan Stanley has a neutral rating on NAB shares, with a price target of $25.30. That suggests that the NAB share price is going to fall over the next year. Low growth of the loan book is something the broker is keeping an eye on.

More reading

• ASX 200 Weekly Wrap: ASX sees 7,000 points once more
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• Commonwealth Bank (ASX:CBA) share price and weekly news wrap
• ASX 200 dips, AGL to split in two, NAB’s neobank acquisition approved
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Is the NAB (ASX:NAB) share price a COVID recovery buy? appeared first on The Motley Fool Australia.

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In afternoon trade on Monday, the S&P/ASX 200 Index (ASX: XJO) is on course to start the week with a disappointing decline. At the time of writing, the benchmark index is down 0.35% to 6,970.7 points.

Four ASX shares that are falling more than most today are listed below. Here’s why they are dropping:

Brickworks Limited (ASX: BKW)

The Brickworks share price is down 2.5% to $20.39. Today’s decline is partly attributable to the building products company’s shares going ex-dividend this morning for its interim dividend. Eligible shareholders can now look forward to receiving Brickworks’ 21 cents per share fully franked dividend later this month on 28 April.

Imugene Limited (ASX: IMU)

The Imugene share price has tumbled over 8% to 16.5 cents. This was despite the clinical stage immuno-oncology company announcing the presentation of its CF33 oncolytic virus program at the American Association for Cancer Research (AACR) 2021 Annual Meeting. This presentation demonstrated that 124I-based PET/CT imaging can be used to visualise SC and peritoneal tumours treated with Imugene’s CF33-hNIS-antiPDL1.

Platinum Asset Management Ltd (ASX: PTM)

The Platinum share price is down 4% to $4.84. This follows the release of its funds under management (FUM) update after the market close on Friday. That update revealed that Platinum recorded net outflows of approximately $206 million for the month of March. This left the fund manager with total FUM of $24.5 billion at the end of the period.

Synlait Milk Ltd (ASX: SM1)

The Synlait share price has continued its slide and is down 2% to $3.15. Investors have been selling the struggling dairy processor’s shares after it announced the surprise exit of its CEO, Leon Clement. Though, with the Synlait share price losing over 70% of its value during his tenure, shareholders may be hoping that a change of leader will get it heading in the right direction again. Last month Synlait warned that it expected a breakeven result in FY 2021.   

More reading

• Synlait (ASX:SM1) share price on watch after sudden CEO exit
• 5 things to watch on the ASX 200 on Monday
• 3 ASX dividend shares to buy today
• Why Aurelia Metals, Brickworks, Greenland Minerals, & Resolute are tumbling lower
• Bullish ASX 200 shares breaking into 52-week highs 

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Brickworks. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why Brickworks, Imugene, Platinum, & Synlait shares are dropping today appeared first on The Motley Fool Australia.

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At the start of each week I like to look at ASIC’s short position report to find out which shares are being targeted by short sellers.

This is because I believe it is well worth keeping a close eye on short interest levels as high levels can sometimes be a sign that something isn’t quite right with a company.

With that in mind, here are the 10 most shorted shares on the ASX this week according to ASIC:

• Webjet Limited (ASX: WEB) remains the most shorted ASX share after its short interest jumped week on week to 15.3%. It appears as though short sellers believe the travel market may take longer to recover than hoped.
• Tassal Group Limited (ASX: TGR) has seen its short interest remain flat at 9.9%. Weak salmon prices and Australia-China trade war fears are weighing on sentiment.
• Flight Centre Travel Group Ltd (ASX: FLT) has short interest of 8.8%, which is flat week on week. Short sellers appear to believe the travel agent’s shares are overvalued at the current level.
• Inghams Group Ltd (ASX: ING) has 8.3% of its shares held short, which is up week on week. Concerns over an unfavourable shift in its sales mix and the sudden exit of its CEO could be weighing on sentiment.
• Resolute Mining Limited (ASX: RSG) has seen its short interest rise week on week again to 8.2%. A disappointing full year result, weak guidance, and the termination of its Bibiani mining licence are weighing on this gold miner’s shares.
• Metcash Limited (ASX: MTS) has seen its short interest remain flat at 7.3%. Valuation concerns, supermarket price war fears, and high capital expenditure plans could be behind this high level of short interest.
• InvoCare Limited (ASX: IVC) has 6.3% of its shares held short, which is down slightly week on week. There are concerns that InvoCare could be losing market share to its funeral industry rivals.
• Megaport Ltd (ASX: MP1) has entered the top ten with short interest of 6.2%. This may be due to valuation concerns, especially given rising bond yields.
• Temple & Webster Group Ltd (ASX: TPW) has seen its short interest rise to 6.1%. As with Megaport, this appears to be due to fears over the sky high multiples that its shares trade on.
• Alkane Resources Limited (ASX: ALK) is back in the top ten with short interest of 5.8%. Investors may be disappointed with the slow progress the company is making with its rare earths project. Investors were very excited about it last year, driving its shares notably higher.

More reading

• Why ASX travel share prices are slipping today
• ASX 200 down 0.3%: Webjet completes note offering, Xero pushes higher
• 2 stellar ASX growth shares that could be strong buys
• Is the Coles (ASX:COL) share price a buy today?
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends MEGAPORT FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited, InvoCare Limited, MEGAPORT FPO, and Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Peppermint Innovation Limited (ASX: PIL) share price has fallen 14.7% today, despite good news from the company. This morning, the financial technology company announced it has signed an agreement with the Philippines’ largest micro-financial services provider.  

The agreement will allow users of Peppermint’s Bizmoto product to withdraw and deposit money at 2,500 shops in the Philippines.

At the time of writing, the Peppermint share price is 2.9 cents, down from Friday’s closing price of 3.4 cents. Let’s look closer at why the Peppermint share price is falling today. 

Peppermint’s agreement with Cebuana Lhuillier

The agreement announced today will allow users of Peppermint’s Bizmoto platform to withdraw and deposit money in any one of Cebuana Lhullier’s 2,500 storefronts.

Bizmoto is a Philippines-based fintech product for micro-business owners and entrepreneurs. It allows users to receive and manage payments securely and easily.

According to Peppermint, Cebuana Lhuillier is the Philippines’ largest and leading micro-financial services provider.

Under the agreement, Cebuana Lhuillier will earn a fee when Bizmoto agents deposit money to the platform at one of its shops.

Peppermint also takes a fee when users perform transactions on the platform.

Today’s news from Peppermint comes just weeks after the company made a deal with the Bank of Philippines (BPI).

The agreement with BPI will see users able to transfer money from the bank onto the Bizmoto platform.

Commentary from management

Peppermint managing director and CEO Chris Kain said the latest agreement increased the platform’s convenience and accessibility.

It is yet another ‘brick in the road’ as we build out our bizmoto ecosystem, further integrating our bizmoto platform into the established Philippines’ payments industry as we seek interoperability across the digital payments landscape throughout the Philippines.

Peppermint aims to continue to align itself with strategic and established partners across the Philippines’ payments landscape to ensure the bizmoto platform and ecosystem of services is convenient and accessible to as many Filipino people as possible.

 Peppermint share price snapshot 

The Peppermint share price is currently in a unique position. Until late February of this year, the company’s shares had been frozen for nearly 18 months.

Peppermint has been listed on the ASX since 2008, with its highest closing price occurring in October 2009, when it closed at 37 cents. When it was frozen, the Peppermint Innovation share price was a comparatively measly 1 cent.

Since it started trading once more in February, Peppermint Innovation share price has risen and fallen a number of times. Though, it is currently right where it started a few months ago.

The company has a market capitalisation of around $54 million, with approximately 1.5 billion shares outstanding.

More reading

• Peppermint (ASX:PIL) share price surges 13% on ‘significant’ Asia deal

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned.

The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Australia’s CEOs may not agree on many things, but when it comes to cyber security the nation’s chief executive officers are united…in fear.

According to a survey by PwC, released last month, 95% of Aussie CEO’s name cyber security issues as the biggest threat to their business’s growth outlook this year.

To combat tis threat, 78% of CEOs in the survey reported they would be increasing their long-term investments into cybersecurity measures.

Cyber attacks go viral Down Under

Hackers have been around since the first days of the internet. But as the pandemic swept the globe it ushered in rapid growth in the digital world as people switched to working, shopping and socialising from home. And so too did we witness an explosion in cybercriminal activity.

Speaking at the Australian Financial Review Banking Summit last week, Australia and New Zealand Banking GrpLtd (ASX: ANZ) head of institutional banking, Mark Whelan said cyber security was the biggest threat facing the banking sector. Whelan reported that hacking attacks had ramped up during the COVID outbreak, with ANZ hit by 8–10 million attacks every month.

Telstra Corporation Ltd (ASX: TLS) chairman John Mullen is also all too familiar with the potential damage caused by cyber breaches. Mullen is also the chairman of Toll Group, which was hit by 2 cyber attacks last year.

According to Mullen (as quoted by the AFR):

I can’t remember the time of day now, but you get those calls at midnight or one o’clock in the morning. We were all on deck almost immediately. We didn’t know for some while how far it had gone and how damaging it was, but it escalated by the hour. It was really scary and as a director you really have to look at yourself in the mirror and say: ‘Jesus, what could I have done to have at least mitigated it, if not stopped it?’

So long as we continue to increase our dependence on digital communications and transactions, cyber criminals will continue to try to find ways to steal or ransom valuable data.

But that doesn’t mean we have to make it easy for them.

This ASX ETF is battling the cyber security threats

While there are a number of small ASX listed cyber security shares, the biggest players in cyber defence remain international shares.

ASX investors seeking exposure to some of the biggest names in cyber security can consider the Betashares Global Cybersecurity Etf (ASX: HACK). The exchange traded fund (ETF) holds 40 leading cyber security shares, with the top holdings including Cisco Systems Inc, Accenture Plc, Splunk Inc, and Crowdstrike Holdings Inc.

Despite the soaring number of cyber attacks in Australia, and around most of the world, the Betashares Global Cybersecurity ETF has underperformed the All Ordinaries Index (ASX: XAO) over the past 12 months. The HACK share price is up 18% since this time last year while the All Ords has gained 30%.

With the majority of CEOs reporting their intentions to up spending on cyber security (indeed BetaShares forecasts global spending in 2022 to reach US$224 billion), the shares held within the Betashares Global Cybersecurity ETF could be the ones to benefit.

More reading

• ASX 200 Weekly Wrap: ASX sees 7,000 points once more
• 2 buy-rated ASX dividend shares with generous yields
• 2 quality ASX dividend shares to buy next week
• Is it time to buy ANZ (ASX:ANZ) at today’s share price?
• Telstra (ASX:TLS) and 2 other ASX dividend shares offer yields over 5% today

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of BETA CYBER ETF UNITS. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Here’s the thing about property prices: once you accept that houses and units have become a mainstream ‘financial’ asset (as opposed to a ‘lifestyle’ asset), the recent surge shouldn’t be a surprise.

But, not just that.

It should have been expected.

We have known for decades that when money is cheap (i.e. interest rates are low), asset prices tend to be higher than they otherwise would be.

When money is expensive (when rates are higher), asset prices tend to be lower.

It is Economics 101: the law of supply and demand.

We see supply and demand playing out clearly in the affordability statistics: property repayments, as a percentage of income, are cheaper now, than they’ve been in years.

What?

No, I didn’t say ‘prices’.

I said ‘repayments’.

It has always been the case that most of us pay more attention to our ‘borrowing capacity’ than our ‘borrowing comfort’.

We ask — sometimes ourselves, sometimes the bank manager or broker — ‘How much can I borrow?’ or ‘What can I afford to buy?’

And the answer is generated by working out what fortnightly/monthly payments you can afford, which is then reverse engineered into a dollar figure to work out how much you can afford to pay for your new house or unit.

I know you’re probably ahead of me by now, but just in case: at a given repayment level, the lower the interest rate, the more you can borrow.

So, as interest rates have come down, affordability (as a percentage of income) doesn’t change, BUT affordability (expressed in total dollars you can use to buy a house) goes up.

You don’t have to like it.

I don’t have to like it.

But that’s the (pretty basic) maths.

And so you don’t have to do it yourself, here’s what MoneySmart says:

If you could afford to repay, say, $4,000 per month (and assuming no mortgage fees) you could borrow $949,000 million at 3%

But, then rates fell…

Now, if you could still afford to repay $4,000 per month, and rates come down to, say, 2%, you can borrow $1.082 million.

That’s a 14% increase.

You don’t have to borrow more, of course.

But you probably didn’t ask the bank manager ‘How much could I have borrowed 12 or 24 months ago?’, did you?

No-one else does, either.

So, in an incremental and invisible quasi-auction, prices slowly (or not so slowly) creep up, as competing would-be buyers have more to spend.

Yes, we truly are our worst enemies. Or, more accurately, we’re each other’s worst enemies. 

At least if you’re a would-be buyer.

If you’re a seller, you’re more than happy for this to play out.

By now, a decent number of you are metaphorically, if not literally, yelling at your device right now.

You’re saying that it’s not right.

Not fair.

That it’s the Boomers’ fault.

Or the government’s.

For what it’s worth, I think the intergenerational blame game is pretty boring (I’m yet to be invited to a meeting of my generation to decide what we’re going to do to you others!), but the impacts are very real.

I’m not sure high(er) house prices are particularly good for our society (though it’s also true that the money goes around, so it’s not like those high prices are removing money entirely from circulation). 

But, again, it’s no less affordable, at current rates — I think the ‘sticker price’ of a house is missing the main game.

Others of you (and some of the same people as above) are yelling that the maths also works in reverse — that as interest rates go up, borrowing capacities will reduce (sans reasonable wages growth).

Which is exactly right.

And this one, I think, is the real issue.

If you’re buying a house because prices always go up, or because they don’t — or can’t — come down, I hope this is a dose of reality.

There was a time, when deposits were higher, bank managers were more cautious, and housing wasn’t seen as a financial asset in the same way.

But that was decades ago.

And since the early 1990s rates have really only gone one way (with small interludes): down.

We’re yet to really live through a meaningful ‘tightening cycle’ (rates going up) with this level of indebtedness and with property well and truly a ‘financial asset’.

So, it will pay to be ready, mentally, emotionally and financially.

No, I’m not forecasting price falls. I don’t do predictions.

But I’m saying, very clearly, that it’s very, very possible.

That you should be prepared for it.

And that, particularly if you’re investing in property, you should be careful.

Yes, property bulls, I hear you; the same is true of share prices.  But there’s one difference. Profits tend to go up, over time, and — at least over the long term — at a faster rate than wages.

Meaning that, all else being equal, I expect share prices to be less impacted, over the long term and on average, than housing (whose ‘earnings’ — the wages of the mortgage-holder — won’t grow anywhere near as fast) from such a change.

Could I be wrong?

Yep.

About any or all of the above.

But I don’t think I am.

And at the very least, I hope you’ll seriously consider the odds that I’m right, and the impact on you, and on your investments.

(And, if you haven’t already, why not give the Motley Fool Money podcast a listen!)

Fool on!

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Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Rising property prices aren’t a surprise. But falls won’t be, either… appeared first on The Motley Fool Australia.

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The Perenti Global Ltd (ASX: PRN) share price is sliding today, down almost 1%.

This comes after the ASX mining services company reported on a new contract for its subsidiary.

What new contract did Perenti report?

Perenti Global shares are slipping despite the company reporting a significant contract extension for its African mining subsidiary, African Underground Mining Services (AUMS).

The 2-year contract extension, effective immediately, will see AUMS continue with its operations at AngloGold Ashanti’s Geita Mine in Tanzania. Perenti reported the new contract will increase its current work in hand by roughly $235 million.

Geita Mine transitioned from an open-pit mine to an underground project in 2016. AUMS has provided its underground mining services since the transition.

Commenting on the renewed contract, Mark Norwell, CEO of Perenti said:

[T]his contract extension includes the addition of Geita Hill, a new underground development within the Geita Complex, which will see a steady increase in our scope of works and revenue run rate as the development ramps up from a single heading decline into multiple work areas and then into production later in 2021.

This contract extension is expected to generate an improved earnings contribution for Perenti over the contract term. Winning new contracts and extending existing contracts is one of our key strategic priorities and we continue to make great progress on the execution and delivery of our 2025 strategy.

The contract will see Perenti transfer 20% of equity in AUMS Tanzania to BG Umoja Services Limited. The newly created mining support services company is an 80:20 JV between Perenti and local company Geofields Tanzania Limited.

Perenti share price snapshot

Over the past full year the Perenti share price is up 22%. That trails the 30% gains posted by the All Ordinaries Index (ASX: XAO) over that same period.

Perenti shares fell hard in February, with the selling likely triggered by a disappointing half year earnings report, which saw the company post a net loss after tax of $63.8 million. So far in 2021, the Perenti share price is down 21%.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post What’s happening with the Perenti Global (ASX:PRN) share price? appeared first on The Motley Fool Australia.

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